City lease would have raised price of McLeans' building by $200,000

Kim Clark and JoAnna DaemmrichTHE BALTIMORE SUN

A city lease that Baltimore Comptroller Jacqueline F. McLean slipped past top city officials this fall would have boosted the selling price of her family's vacant Federal Hill building by at least $200,000, real estate experts said yesterday.

Otis Warren Jr.'s offer of $650,000 for 12 W. Montgomery St. was reasonable only because of the long-term, ironclad lease offered by the city Health Department, appraisers and realty agents said. Without a lease, the building might not be salable at all.

"Nobody has wanted to buy a building like that in a year and half," said Timothy R. Hearn, senior vice president of MacKenzie O'Conor Piper & Flynn, a regional real estate company with offices in Baltimore.

The McLeans badly needed a quick and lucrative sale of the building, the former headquarters of their defunct travel agency.

According to legal documents, the McLeans faced a Development Credit Fund lien of $341,681, bills from the Airline Reporting Corp. for nearly $112,000 in airline tickets, and $21,000 in unpaid rent for a former Four Seas & Seven Winds Inc. office in Milwaukee.

The McLeans did not return phone calls asking for comment yesterday.

The lease -- and Mrs. McLean's apparent efforts to sidestep a review by city officials -- are the subject of a grand jury investigation by Maryland's special prosecutor.

The lease called for the geriatric nursing service to move from rent-free offices at Montebello Rehabilitation Hospital to the McLeans' building, on a 10-year lease with an annual rent of more than $106,000.

The Board of Estimates approved the lease Oct. 27, but revoked it a month later, after learning that the McLeans owned the building.

Mrs. McLean failed to reveal her financial interest in the building to the board, which approves all city contracts, and voted for the lease.

Mr. Warren, a prominent local real estate developer, said yesterday that James McLean told him he needed to raise at least $550,000 from the sale of the building.

Mr. Warren offered $650,000, or the appraised value of the building, whichever was lower.

The top price was the most that could be justified with the city lease, he said.

Mr. Warren said he offered to buy the building because he wanted to help out financially troubled friends without making a bad business move.

"I didn't want to take advantage of them and I didn't want them to take advantage of me," he said.

Purchase offer withdrawn

Mr. Warren withdrew his purchase offer because of the growing controversy over Mrs. McLean's role in obtaining the city lease for the building.

"I don't want to be related to anything that isn't kosher," he said. "My name is all I have."

Local real estate experts said an appraiser might very well have backed Mr. Warren's top price, but only because the long-term city lease would cover a mortgage of about that size.

Gordon C. Gilbert Jr., a Baltimore appraiser, said the building would probably not be worth that much if the same lease had been offered by a business.

Government agencies are considered among the safest tenants because they never go out of business and their checks don't bounce, he said.

The McLeans would be lucky to sell the vacant building, even at a discounted price, within a year, Mr. Hearn said.

With vacancy rates so high in the Baltimore area, banks are refusing to grant mortgages for empty commercial buildings, he explained.

Finding another tenant to make the building more salable will be difficult, Mr. Hearn said. More than one-fourth of all similarly rated offices and buildings in Baltimore are empty, he said.

As previously reported, Mrs. McLean, the city's third most powerful elected official, is under investigation by city ethics officials and State Prosecutor Stephen Montanarelli for her role in obtaining the city lease on her family's building.

Mistake acknowledged

Mrs. McLean has acknowledged she made a mistake in not disclosing her family's stake in the building while seeking city approval. She has said that because the lease was with Mr. Warren, who planned to buy the building, she believed there was conflict of interest.

Mr. Montanarelli, who called two employees of the comptroller's office to testify before a grand jury Thursday, is also believed to be investigating how the address on the lease and other city documents is the rear entrance of the building -- 11 W. Hughes